ITO Vs Arcil Retail (ITAT Mumbai)
ITAT Mumbai held that securitisation trusts, cannot be assessed as an AOP, are revocable within the meaning of section 63 of the Income Tax Act and hence income is not taxable in the hands of trust. Accordingly, the appeal of the revenue is dismissed.
Facts- During the course of assessment proceedings, AO noted that the assessee was constituted as a trust by Asset Reconstruction Company (India) Ltd. (ARCIL) pursuant to the provisions of the SARFAESI Act, 2002 and RBI Guidelines, for the purpose of acquisition and resolution of Non-Performing Assets. Funds were raised by issuance of Security Receipts (SRs) to Qualified Institutional Buyers. ARCIL functioned as settlor, trustee and asset manager of the trust. From the financial statements, the AO recorded that during the year the assessee had earned interest income of Rs. 14,11,256/- and surplus on realization of NPAs amounting to Rs. 30,19,34,691/-, against which protection, preservation and insurance expenses of Rs. 2,69,70,724/- were claimed. The net surplus of Rs. 27,63,75,223/- was claimed as exempt by the assessee.
AO held that the assessee could not be regarded as a trust for the purposes of sections 61 to 63 of the Act and that, on the facts, the contributors and beneficiaries had joined in a common purpose of earning income. According to the AO, the assessee constituted an Association of Persons within the meaning of section 2(31) of the Act. The claim of exemption under sections 61 to 63 was denied. The AO also disallowed the claim of protection, preservation and insurance expenses of Rs. 2,69,70,724/- and treated interest income as income from other sources. Accordingly, the AO assessed the total income of the assessee at Rs. 30,33,45,950/- and initiated penalty proceedings u/s. 271(1)(b) and 271(1)(c) of the Act.
